why krugman is wrong

Duvinrouge says many ‘socialists’ have got pleasure from seeing Krugman expose the prejudices and flaws in those advocating austerity as a solution to the crisis. He is right that austerity won’t work and is mainly being pursued for ideological purposes. However, he is wrong to believe that Keynesian fiscal stimulus can solve the crisis. He is wrong because he misdiagnoses the crisis and misunderstands the nature of value.

For Keynesians like Krugman, the problem is a lack of demand because the private sector is not investing. Without a surge in exports they argue that it is the government’s job to take up the slack and restore effective monetary demand. This would have some merit if the problem was just a lack of demand due to producers not investing and instead hoarding their money. But this ignores the mountain of debt and the reasons why there is so much debt.

Essentially, I believe there are two reasons. Firstly, as Andrew Kliman shows, there is evidence of a falling rate of profit and financialisation is a reaction to this. Secondly, there is also a realisation problem. Because we live in a capitalist world where commodity production rules, Say’s Law doesn’t hold – production doesn’t create its own demand. There has to be sufficient commodity money to circulate the commodities produced. Without a corresponding growth in commodity money we get a crisis of overproduction – an overproduction of commodities relative to the money commodity. This is permitted to happen due to credit/debt, which is claims on future labour time. When there was a gold standard overproduction had its limits. When it became apparent that the credit money was better converted to gold, the rush to gold caused a credit crunch, recession and debts to go unpaid. This is how the law of value restore the balance between the production of commodities and the money commodity. But since the collapse of Bretton Woods the connection between token money and labour values isn’t so clear. We still see the rush to ‘hard cash’. The dollar and US, UK and German government bonds are foolishly seen as a store of value. And of course people still buy gold. But it’s still not clear to most that aggregate prices are out of line with values and that only a recession (or in this current crisis a severe depression) can restore profitability. Least of all it seems clear to Krugman and his fellow Keynesians.

35 thoughts on “why krugman is wrong

  1. I’m sorry but ther is so much wrong with this in terms of marxist economics that it is difficult to know where to begin.

    1. For Marx, a crisis of overproduction is not an over production of commodities against the Money commodity. It is an overproduction of Capital, meaning that Money has been converted into Constant and variable Capital, production has taken place, but the Capital used up in their production cannot be reproduced through their sale. In fact, we see no such situation in the world today, there is no huge amount of commodities that cannot be sold. On the contrary what we see contrary to Kliman’s incorrect statement about a falling rate of profit, is that the rate of profit, and the volume of profit has been rising rapidly, which has created huge amounts of the money form of those profits. Huge cash balances sit in various deposits, and on the Balance sheets of large companies around the globe. It is what marx describes as Money Hoarding. Krugman is right that the problem is that both companies and consumers are holding back from spending because of fear.

    2. There is a large amount of debt in some locations, and this is indeed a contributory factor to the fear, because it is the existence of this debt which is causing some Governments in Europe to propose “austerity” in order to get rid of it. But, looked at globally there are much larger savings than there is debt.

    3. As Marx demonstrated there is no requirement in a Capitalist economy for a lack of the money commodity to cause a constriction of circulation. In previous times the problem was dealt with by debasing the currency physically, today all that is needed is to print more money tokens.

    4. I don’t see whyn you think the collapse of Bretton Woods had anything to do with the relationship of token money and labour values. As marx demonstrates under capitalism commodities do not circulate in line with their Exchange Values, but in line with their prices of production, and in fact their market prices. The direct connection between money prices (be it commodity money or money tokens) and Exchange values ceased not with the ending of Bretton Woods, but with the coming of Capitalism!

    5. Krugman and the Keynesians are wrong to beleive that Keynsesianism can provide a solution to Capitalist Crises under all conditions, but he is not wrong that such solutions can provide a solution to the present situation. The fact that, keynesian stimulus in the US, in China, in Brazil and elsewhere did restore growth demonstrates that. This is not a crisis of overproduction, but rather like the crises of 1847, and 1857 that Marx describes in Volume III of Capital, which were created by misguided Government (Bank of England) policy. Those crises as marx sets out ended when those policies were reversed. The extent of growth and investment, and dynamism in the global economy, and the potential for yet further profitable investment – there are a huge number of new types of Use Value wating to be marketed, massive new productive potential, and a huge volume of Money available to be converted into productive Capital – demonstrate that a similar reversal is possible here.

    That is probably why increasing pressure is being applied from many different sections of Capital and its representatives for Germany to change its course, and agree to the introduction of Euro Bonds, and the collectivisation of Euro debt, in order to lay the basis for a programme of growth based on investment, and a restructuring of Capital. It is not just Hollande’s victory that is making Merkel isolated. Now even those technocrats put in charge of Italy, and of the ECB are demanding that Germany change course.


  2. As for the body of the article I found myself scratching my head: it is too short and unclear. I do appreciate briefness in blogging but up to a point. In this case we are bound to almost imagine what the author means by stuff like:

    · “as Andrew Kliman shows” (who’s that guy, was there supposed to be a link there?).
    · “production doesn’t create its own demand” – I can probably agree with that but I have to think a while about it.
    · “an overproduction of commodities relative to the money commodity” – as Boffy explains in the comment: money can be printed as much as needed, so again this is not clear at all. Marxist notions of money as “real” are actually the weakest point of all Marxist economy theory (in fact I recently decided that I can’t be Marxist senso stricto anymore because Marx fails to grasp that money is not “real” like food or a pair of shoes but virtual).

    Overproduction happens indeed (unlike what Boffy says) because demand is quelled because of the self-contradictory tendency of Capitalism to maximize profits in the short term by lowering work costs (and costs in general, what also affect demand). But it is not the money commodity what is involved by the money virtual token, which is not a good but a mere accounting note in an e-book (occasionally still adopting residual physical form but less and less so).


    “there is no huge amount of commodities that cannot be sold”

    There is: you just have to visit that Spanish town south of Madrid which used to export furniture en masse and does not anymore, languishing in an effective bankruptcy. But in most cases the stores are not full of unpaid orders or goods without a customer but simply many many companies with full production capacity are pushed to death. That’s because today, with the Toyotist method of production, storing has been minimized and goods are produced “just in time” – but the difference is technical: there is an overproduction capacity, just that often the goods are not actuall produced because there is no demand that justifies that anymore.

    But the overproduction crisis does exist because the demand has been dramatically reduced in the Capitalist Nth self-destructive attempt to reduce costs (salaries essentially). What Krugman and the Keynesians say that salaries must be protected in order to guarantee non-luxury demand and prevent an overproduction crisis. But that seems to be apparently impossible considering the objective interests of the high bourgeoisie, which are of looting as much as possible in life.

    Otherwise I can largely agree with what you say, but not in the end: “Krugman and the Keynesians are wrong to beleive that Keynsesianism can provide a solution to Capitalist Crises under all conditions, but he is not wrong that such solutions can provide a solution to the present situation”.

    Can they? If so why are they not being applied? I think that such solutions might have worked earlier in the timeline of the crisis, as shock therapy, in 2007-2009 maybe but today we are, at least in Europe, like in moving sands: totally stuck and unable to forge a solution – outside of socialist methods of massive nationalizations and state intervention in a demonetarized economy (up to rationing cards and such), what may happen first in Greece but is needed elsewhere too.

    Another thing I disagree with is implying that debt matters. As you say well governments and central banks can issue all the monet they want (against a cost of inflation but it’s something normally manageable and relatively not that bad as other options). However they are deciding not to do that anymore in a decission that amounts to looting by the financier elite of the rest of the economy. Governments can issue money and declare bankruptcies and solve that problem more or less but then bankers would not get their share, what their consider their share.

    What best illustrates what is happening now is that while everything goes overboard, banksters keep getting pay rises and fat dividends. And then they demand that governments for “help” them. I think that the case of Bankia, governed by the rotten cream of the Spanish tories and personally by a former IMF Director, clearly illustrates this: just before being nationalized Bankia was giving away dividends and its managers are retiring with fat pensions and compensations…

    It’s a case of loot and run of huge proportions, affecting not just to the working class but also to the productive subsectors of the bourgeoisie. That is what financiarization is.


  3. Boffy,

    So you are one of those underconsumptionists?

    If so, I’m happy to discuss to make sure I’m understanding the underconsumptionist approach to crisis correctly.

    I haven’t read Sweezy’s Monopoly Capital, but my understanding is that because of monopoly & monopoly prices, corporations make super-profits at the expense of low worker’s wages. Because of the Keynesian influence on Sweezy, this leads him to believe that there will be a deficiency in monetary demand. The solution is for workers to be paid more to be able to buy what they produce.

    I can see that this has appeal when we see large corporations recording record profits, as they have done in recent decades. But as Marxists we must not stay at the surface level. As we saw in 2008 record profits can soon turn into record losses requiring state bailouts of unprecedented size.

    Could it not be that the high recorded profits have been artifically supported by credit/debt (claims on future labour time)?

    This is taking us back to the very concept of value which I think lies at the heart of many disagreements between the underconsumptionist & falling rate of profit schools of Marxist crisis theory.

    Sam Williams’ in his blog http://critiqueofcrisistheory.wordpress.com/ calls for both schools to re-examine Marx’s concept of value & how this in particular relates to commodity money. A lot of confusion has arisen because we don’t clearly differentiate between commodity money & token money.

    I recommend reading Sam Williams’ blogs on money:

    These might help show why overproduction is the overproduction of commodities relative to the money commodity, as I believe Marx meant, not the concept of over-accumulation that you describe. The only similarity between the two being an underlying concept of a problem of realisation of surplus value. A problem that the falling rate of profit school tend not to recognise.

    This, I believe, is the strength of Sam Williams’ analysis. Not only is the key component of Marx’s Capital, the law of the tendential fall in the rate of profit, held to be of central importance in the transition to communism, but cyclical crises can be explained by overproduction based upon a realisation problem.

    I believe we have elements of both in the current crisis, which may be resolved by severe capital devaluation, but not by increasing worker’s wages as the underconsumptionists say.



  4. Maju,

    Here’s some answers for you:

    1. Andrew Kliman is the author of a book called The Failure of Capitalist Production – the book has evidence of a falling rate of profit in the US (not the world) with the main reason being the increase in the organic composition of capital, which can also be roughly explained as the growth of capital growing faster than the rate of productive labour time). The book is worth reading if you’re interested in crisis theory (as every Marxist should be).

    2. If you’re not familar with Say’s Law then it obviously requires thinking about, just like any economics concept; no doubt the organic composition of capital confuses the hell out of most people, as it does for almost everyone.

    3. Overproduction & Value – remember token money isn’t commodity money. See above reply to Boffy. Your explanation of overproduction seems like the underconsumptionist explanation to me.



  5. Duvinrouge,

    1. No I am not an underconsumptionist, as I said above. But, that does not mean that any particular crisis – like the 1847 and 1857 Crises – are not sparked by a lack of demand, which in turn can arise from a number of causes, including Money Hoarding, rather than an actual overproduction of Capital.

    2. Actually, all the evidence gathered by Marxist economists from the 1980’s onwards is that Monopolistic Competition means that Oligopolies do not make above average profits. Where Monopolies do make above average profits, far from it being from a greater exploitation of their workers, it arises from being able to acquire some of the Surplus Value of other Capitalists e.g. suppliers. Usually, the existence of a Monoply means that the workers are able to obtain higher wages/better conditions (Rent seeking) than workers employed by smaller firms, who are less well organised, have less bargaining power, and whose employers are less able to buy them off, or ensure their retention. This is one reason Marxists generally prefer Monopolies to smaller companies.

    3. The record profits that have been generated across the globe from the end of the 1990’s onwards have not generally been the consequence of credit. That certainly is not the case in China, where the average worker family saves half its income for instance. Even in 2008, the record losses you mention were restricted to the Banks and Finance Houses, and a consequence of a ddestruction of fictititous Capital. The amounts and rates of profit of Productive Capital even with the recession have tended to rise.

    4. Both the underconsumptionists and the falling rate of profit schools are wrong. Marx does not place any particular emphasis on the TENDENCY for the Rate of profit To Fall, as a cause of crisis. In Capital III he talks about a crisis of overproduction causing a sudden fall in the rate of profit.

    5. I do distinguish clearly between commodity money and token money. But, this has nothing to do with a crisis of overproduction of Capital. Marx clearly did NOT mean an overproduction of Commodities relative to Money be it Commodity Money or Money Tokens!

    6. In many ways it is wrong to talk of the “current crisis” because there is only a crisis in certain peripheral European economies. The gloabl Capitalist economy continues to grow, and in palces grow strongly. Even China’s sharp slow down leaves it growing at around 8%! Similarly, with the recent US employment data. The unemployment rate rose marginally not because unemployment had risen, but because the growth in employment did not keep pace with the icnrease in the size of the labour force! The US economy continues to grow, and does so because it has employed keyensian stimulus.

    We do not have overproduction of Capital, what we have is Capital not expanding rapidly, and that is so, because Capitalists are afrid of investing large amounts, and consumers are afraid of spending too much. The keynesian response has nothing to do with paying workers more, but with removing the fear by dealing with the political/structural causes of that fear.

    7. Incidentally, what do you mean when you say the Tendency for the Rate of Profit to Fall is central to the transition to Communism?

    8. What do you mean when you say, “organic composition of capital, which can also be roughly explained as the growth of capital growing faster than the rate of productive labour time).” What exactly is the rate of productive labour-time? This is a meaningless term! The rise in the organic composition of Capital is defined by Marx as the rise of Constant Capital relative to Variable Capital!

    9. People should read Kliman’s book, but his theory is fatally flawed. Partly that is because of his use of Historic Pricing of Capital rather than as Marx does using reproduction cost of Capital. But, the facts simply contradict the idea that over the last period the Rate of Profit has been falling. The Rate of Profit troughed in the 1980’s and have been rising since.

    10. In your original post you spoke about the issue of debt. But, in fact, in 1950, the UK’s debt to GDP ration was 250%, or about 4 times what it is today. Yet, it embarked on a Keynesian programme of expansion which saw the establishment of the NHS and Welfare State, the Nationalisation and recapitalisation of core industries, and so on. The same process occurred across most of western Europe. Yet, both debt and debt to GDP fell in the following years. The reason is that these Keynesian policies stimulated growth, and facilitated the further production of Surplus Value due to the conditions of a Long Wave Boom. The measures particularly of the establishment of the Welfare State reduced the Value of Labour Power, and ensured an efficeint reeproduction of Labour Power for Capital. That facilitated a rise in relative surplus value. Increasing growth both created the higher levels of Surplus Value out of which taxes could be paid to reduce the debt, and because GDP is the denominator in the equation reduced the ratio of debt to GDP. We are in s imilar global Long Wave Boom today, and so the same kinds of measures are possible, not to cure a crisis of overproduction, which does not exist, but to put in place the conditions for paying down the existing debt, and of removing the fear of a collapse of the Eurozone, which is the major factor preventing increased investment and economic activity.


  6. Boffy,

    Keynes had a subjectivist notion of value, hence his theory of crisis is based upon the psychology. When entrepreneurs don’t feel confident they hoard money & don’t invest. No matter how much interest rates are lowered their ‘animal spirits’ are still not restored. The government has to fiscally intervene.

    But Marxists have an objective theory of value; we don’t have to fall back on psychology. We can explain crises by looking at the underlying economic conditions of production. And although Marxists have roughly split into two camps: those who see a problem producing surplus value & those realising surplus value, I believe Marx recognised both causes.

    Once both schools reassess what Marx wrote about value & recognise the importance of commodity money, we can see that there is at least the possibility of a realisation problem & that this may explain many of the cyclical crises of the past. A recognition of a lack of demand.

    This is why I encourage all to become familiar with Sam Williams’ blog, even if this is to argue why he is wrong.

    Answers to your specific points:

    1. Is there likely to an underlying material reason why capitalists would hoard their money rather than a mass outbreak of pessimism?
    If there’s overproduction (not overaccumulation) aggregate prices will exceed aggregate values & the law of value will attempt to bring the two together by signally that debt saturation has been reached & debts may not be paid back. A credit crunch will result, production will decline, unemployment will soar, debts go unpaid & capital is devalued. In such circumstances there will be a rush to ‘hard cash’ & hence the hoarding of money rather than investment.

    2. Quite possibly. My use of the term super-profits was when I was trying to summarise the underconsumptionist position.

    3. Finance & production cannot be separated.
    Although China has a high savings rate, the investment & economic growth has not come from Chinese worker/peasant savings but from foreign investment, much of which ultimately originated from the creation of US dollars from its vast government debt. China has been one the main purchasers of US government debt, in effect funding the US consumer to buy the huge quantity of Chinese-made commodities. Hence profits being funded by debt.

    4. & 7. I agree Marx doesn’t explain cyclical crises by the tendency of the rate of profit to fall. This really comes into its own once we consider limits to the growth of absolute surplus value & concentrate on relative surplus value, Marx does in part 3 of Volume III. Although on a world scale today there may well be growth in absolute surplus value, the supply-side constraints may be starting to come into play (I’m not aware of there being any statistics on worldwide employment in productive [producing surplus value] employment). As we might expect, in the US there has not been any growth in recent decades (deindustrialisation), & this is probably true for much of Europe. Because the capitalist needs to sell his commodities for more money than he started off with (M-C-M’) & money is the measure of value, for M’ to be greater than M, the latter has to either represent more labour time (increase in absolute surplus value) or the capitalist must take a higher percentage of the workers labour time (increase in relative surplus value). As most Marxists understand, increasing relative surplus value has its limits in terms of how hard you can make workers work, or how much you can reduce their real wages. The emphasis falls upon increasing productivity through new (constant) capital investment. This works so long as the time taken to produce the workers means of consumption can be reduced so that the workers can received less in exchange-value terms but the same (or more) in use-value terms; in otherwords, the rate of exploitation increases. Increases in the organic composition of capital can be offset by increases in the rate of exploitation. Can this continue indefinitely? Marx clearly didn’t think so, otherwise he wouldn’t have given such prominance to ‘The Law of the Tendential Fall in the Rate of Profit’. Indeed, as cheap energy becomes a think of the past, the price (which ultimately reflects labour time) of producing food & other essentials increases, undoing increases in the rate of exploitation, whilst at the same time increasing the organic composition of capital (energy being a key raw material input). Hence the rate of profit is under pressure & the capitalists are responding with direct attacks on workers standards of living, i.e. reducing their amount of use-values. This is why the falling rate of profit brings the class conflict into the open & raises the possibility of revolution.

    5. May I suggest you at least have a good read of Sam Williams’ blogs on money & value. Also, please provide references where Marx is supposedly supporting your notion of overproduction.

    6. I think we can already see that the crisis extends to more than “certain peripheral European economies”. Again, the interconnection between finance & production.

    8. Organic composition of capital – I was trying to make it a bit more intuitive for readers by pointing out that if there was a faster rate of growth in machines & new technology than labour (productive rather than unproductive) then there will a fall in profits (assuming no changes to the rate of exploitation). As more capital goes on the purchase of constant capital that doesn’t produce surplus value, as opposed to variable capital (labour) which is the source of surplus value, then it is harder to produce surplus value & hence profit. I didn’t make this clear enough.

    9. I think Kliman makes a good case for historic pricing.
    The Temporal Single System Interpretation appears to disolve the ‘transformation problem’.

    10. Following the depression of the 1930’s & WWII huge amounts of capital had been destroyed or devalued in the UK. Hence the post-war UK rate of profit was restored. I think this is what enabled it to cope with such high debt & pay much of it off through growth, at least until the 1960’s. Now the UK has high debt & a low rate of profit. This applies to the world capitalist system. The only way out for the capitalist system is another round of capital destruction. Barbarism or socialism.


  7. Duvinrouge,

    Your argument in respect of subjective and objective theories of Value is suspiciously similar to that put forward by the troll DFTM on Dave Osler’s Blog. It is equally wrong. Marxists do not have an objective theory of Value they have a theory of Objective Value! Moreover, this has nothing to do with the analysis of crisis here. Marx was just as aware as Keynes that the actions of Capitalists have a Subjective element. For example, Marx says there is no “Objective” minimum level of profits or the rate of profit. Yet he was more than aware that at a certain point, Capitalists do not invest in additional productive Capital investment, but instead decide to increase their Capital consumption, to engage in speculation, or simply hoard their Money.

    Marxists have not roughly split into two camps over Marx’s crisis theory at all, as anyone familiar with Marxist economics is well aware. There are at least three different camps, as well as those who argue the correct position. The reason for these different positions is the various elements of a crisis that Marx describes. One again, he did not describe just two causes, as anyone familiar with his Economic theory is well aware.

    Once again anyone who is familiar with Marx’s economics knows that your comments in respect of commodity money are meaningless. Marx sets out in The Chapter on Money in “The Contribution To A Critique of Political Economy” why money tokens long ago replaced commodity money. You end that paragraph by saying “that this may explain many of the cyclical crises of the past. A recognition of a lack of demand.” But that is pure underconsumptionism!!!

    For Marxists, Aggregate prices can never exceed aggregate values as you claim, because prices are transformed values. Why on earth in any case would a Credit Crunch result from such a situation as you describe? In the circumstances you describe, there would be the kind of sudden drop in the Rate of Profit that Marx describes. There would be a destruction of Capital. There would be no Money as a consequence to be hoarded! Moreover, as Marx describes, it is precisely under such circumstances of a massive depreciation of Capital, and fall in the Rate of Profit that other Capitalists, newer more dynamic capitalists, step in to use any cash they have to buy up Capital cheaply, and thereby to make high rates of profit on it!

    Your comments in 3 make no sense whatsoever on the basis of any kind of economics or anything else. First you say that Chinese Capital investment has not come from internal sources (mostly wrong) but has come from the US in the form of the printing of US dollars. You confuse this with US debt, and then say that the US debt has been financed by Chinese savings!

    I don’t know why you claim that Marx only deals with relative Surplus Value in Vol. III of Capital. That is a strange claim to make for anyone remotely familiar with his work. There is lots of available data on global labour trends, and employment. The ILO, for example show that there has been about a 33% increase in the global workforce since 2000. That is about 1/2 billion new jobs have been created. Agricultural jobs have remained static, in Industry they have risen by around 150 million (about 30% growth most of which is going to be productive), and in Services around 35% growth or around 350 million new jobs (most of these will be productive jobs too).

    From the same source, employment in the developed economies and EU has risen from around 440 million in 2000, to around 470 million today.

    You say,

    “Because the capitalist needs to sell his commodities for more money than he started off with (M-C-M’) & money is the measure of value, for M’ to be greater than M, the latter has to either represent more labour time (increase in absolute surplus value) or the capitalist must take a higher percentage of the workers labour time (increase in relative surplus value).”

    but this is wrong again, and a mistake that no Marxist economist would make! The Commodities sold by the Capitalist represent more labour-time than the commodities the Capitalist bought (Constant & Variable Capital) because Labour provides more labour-time than is required for its own reproduction! That is not peculiar to Absolute Surplus Value! It is true whether this difference is extracted as a means of Absolute OR relative Suprlus Value.

    You say,

    “As most Marxists understand, increasing relative surplus value has its limits in terms of how hard you can make workers work, or how much you can reduce their real wages.”

    But Marxist economists understand that increasing Relative Surplus Value has NOTHING to do with making workers work harder or reducing real wages!!!!! Making workers work harder i.e. increasing the intensity of labour is a form of ABSOLUTE not relative Surplus Value. Relative Surplus Value is a consequence of increasing productivity or reducing the cost of wage goods by other means, which in turn reduces the amount of labour-time required for the production of labour-power!!!!

    Have you actually read the section of Capital on the Falling Rate of profit? More specifically, have you read all of the countervailing tendencies to it that Marx sets out? It is not just that he sets out WHY a change in the Organic Composition of Capital (via the introduction of better machines) in itself raises the rate of exploitation. The Rate of Profit, as he sets out is also likely to be raised as a consequence of the cheapening of the Constant Capital itself i.e. a change in the Value Composition of Capital!

    There is no evidence that cheap energy is a thing of the past. Oil is cheaper today in real terms than it was in the 1970’s! US gas prices today are a fifth of what they were in 2007 due to the finds of shale gas, and new techniques for extraction. A far bigger component of the rise in trhe Organic Composition of Capital is in the machines itself not in the raw materials, as Marx sets out. Given the revolutionising of productive techniques, and the role now played by new technology, there is every reason to beleive that in large and growing sectors of the economy the Organic Composition of Capital is falling rather than rising.

    In lagre parts of the globe, for example China, Asia, latin America, and even parts of Africa, rather than attacks on workers real living standards, we are seeing significant improvements! Even in Europe, there is no evidence outside Spain and Greece, and possibly Britain in the last year, that real living standards are falling in terms of the number of USE values being consumed. But, also as trotsky points out in “Flood Tide” the idea that a Capitalist Crisis makes “revolution” more likely is a crude determinism, that in most cases is wrong. During crises the conditions for workers are made worse, they are more likely to divide against each other in search of employment etc. They feel weak and uncertain, and lacking confidence – Trotsky too understood the importance of psychology in realtion to human actions including in the economic sphere.

    No serious Marxist economist should require a reference of where Marx states that overproduction is an overproduction of Capital. But, if you like I can provide it. I’ll do it in a separate comment in case of problems with hyperlinks.

    Your explanation of the Organic Composition of Capital was simply wrong, and meaningless, so it was not at all more intuitive. Your explanation of it now in relation to the Falling Rate of profit is also wrong. The fact of the Capitalist increasing spending on C relative to V does not at all make it more difficult to generate profits! Provided the same amount of living labour is employed at the same rate of exploitation then the same amount of Surplus Value will be created! In fact, for the reasons Marx sets out any such change implies an increase in the Rate of Exploitation, and so a RISE in Surplus Value, and profits. The point is that the RISE in profits, may still lead to a FALL in the Rate of profit, due to the higher level of Capital employed!

    You should explain why you think Kliman has a good case. Most Marxist economists strongly disagree. In what way does Historic Pricing “dissolve” the Transformation problem???

    Yes, the UK grew strongly after WWII, and that enabled the debt to be paid down. But, it also took on additional debt, so that was not a problem in adopting expansionary meansures. There is a similar global boom today. It is not true that there is a low rate of profit in the UK today, and certainly not in the global economy. As far as the global economy is concerned there is neither a high level of debt – there is massive money hoarding – or low rate of profit. High rates of profit have created much of the money hoarding, and fiancned rapid capital accumulation in China, and other BRIC economies.

    We’d better hope its not a choice of Barbarism or Socialism, because given the dire state of the Labour Movement, and lack of any sizeable Workers Parties, the odds would be heavily stacked in favour of barbarism.

    To be honest, most of what you write is meaningless, and your further comments here appear rather like someone who doesn’t understand the basics of Marxist economics, and who has tried to grasp at a few phrases to cover up their lack of knowledge. Any serious marxist economist would not make the mistakes you make in relation to the definition of the Organic Composition, or your comments in relation to Overproduction of Capital, for which you only have to read what Engels says in Volume III of Capital.

    Of course there is nothing wrong with people not having a basic grasp of fundamental elements of Marx’s Economics, we all had to learn it some time. But, I find it rather odd that someone who clearly has such little grasp of the basics should be writing blog posts about it on a Marxist website, as though they were an expert. Its rather like someone who is still struggling with ‘O’ level maths writing a textbook on Newton’s Principia.


  8. On the link to Marx’s analysis of Overproduction see Chapter 15. There are lots of quotes where he says it is an overproduction of Capital, not an overproduction as against Money. For example,

    “Over-production of capital, not of individual commodities — although over-production of capital always includes over-production of commodities — is therefore simply over-accumulation of capital.”

    “Over-production of capital is never anything more than over-production of means of production — of means of labour and necessities of life — which may serve as capital, i.e., may serve to exploit labour at a given degree of exploitation;”


  9. It’s like discussing with a Jehovah, only they are polite.
    Just because your views on crisis theory are challenged doesn’t mean you have to be so disrespectful.
    It’s a typical Bolshevik tactic to rubbish an opponent rather than to constructively discuss an issue.

    I think the key difference here is the understanding of value & being able to differentiate between exchange-value (prices) & value (socially necessary labour time).
    Although Marx assumes their equality in Capital, this is because he’s not specifically trying to explain cyclical crises.
    This would probably have been in his planned book ‘World Market’ that he never got around to writing.
    Without being able to understand why prices can diverge from values you won’t be able to grasp the argument of credit/debt enabling overproduction & cyclical crises.

    All I can do is refer you again to Sam Williams’ blog & his articles on money (links in previous comments).
    They are not long articles & there’s the ability to post comments.
    That might be the way to take this forward.


  10. I have no problem with anyone challenging my views on crisis whatsoever, which is why I have responded to all of your points in that regard, by citing actual data to back up the argument, as well as setting out Marx’s views on overproduction. If you wish to provide data that contradicts that I am more than happy to debate it. The problem is that all the people who proclaim some global crisis of Capitalism are never able to provide any data to back it up.

    I am not disrespectful of your views on Crisis, but on the fact that you clearly have little grasp of the basic elements of Marx’s Economic Theory. As I said there is nothing wrong with that. But, even now after 40 years of studying Marx’s Economics, I still read far more about it than I write, and in those areas where I am not sure whether I have a correct grasp I make that clear, and put forward any views I have in the appropriate fashion. That is not he case with the most basic elements of Marx’s Theory such as the definition of the Organic Composition, of Relative or Absolute Surplus Value etc.

    In your latest comment you provide yet anotehr instance of where you clearly do not understand the basics of marx’s Economics. You write,

    “I think the key difference here is the understanding of value & being able to differentiate between exchange-value (prices) & value (socially necessary labour time).”

    Completely wrong. As wrong as it could be. Value is the Value of a particular Use Value, separate from the process of exchange. Use Values produced outside commodity production have a Value determined by the labour time required for their production. It is only when these Use Values are brought into relation with one another through the process of exchange that the labour-time required for their production is also brought into a relation also, and becomes comparable, so that it becomes possible to determine average socially necessary labour-time required for these commodities.

    Moreover, you also here confuse Exchange Values with prices. But, under Capitalism Exchange Values never coincide with prices (apart from those commodities produced using the average composition of capital), precisely because under Capitalism, what drives the allocation of Capital is profit, and because those industries which have a high organic composition of Capital would make lower than average rates of profit, whilst those with lower than average organic compositions of Capital would make above average rates of profit, if commodities sold at their Exchange Values, such a situation cannot exist. Capital moves out of the former and into the latter such that Supply falls in the former and rises in the latter. The consequent adjustment of demand and supply brings about a sitaution in which the different industrial sectors enjoy the same, average rate of profit (though, of course in practice they never do, because this is a continual process, and there are also frictions).

    This the Transformation Problem, of Exchange Values to Prices of Production, you claim Kliman’s Historic Pricing model resolves. If you don’t even udnerstand what that problem is, on what basis can you beleive that Kliman’s approach “dissolves” it?

    Your statement that Marx assumes their Equality in Capital is clearly false. Given that he resolves the Transformation Problem in Capital III (though not satisfactorily, but it has since been resolved by Von Bortkiewitz, and Seton amongst others) your comment that he would have resolved it in his planned further work on the World market again makes no sense!

    I do understand why prices divereg from values, but as marx points out the total of prices must equal the total of values precisely because one is merely the transformed version of the other!


  11. Boffy,

    I didn’t say the difference between exchange-value & use-value.
    There’s use-values, exchange-values & (labour) values.
    Exchange-values are not the prices of individual commodities because of prices of production, but in aggregate for the economy as a whole, the sum total of exchange-values will tend towards the sum total of prices of production.
    This will be the same as labour values over the economic cycle.
    This is what Marx assumes for Capital, abstracting out cyclical crises.
    But this is the key point, during the economic cycle aggregate prices (exchange-values) diverge from aggregate labour values.
    See Sam Williams’ blog on the phases of the industrial cycle:

    Now by all means argue that:
    1. I don’t correctly represent Sam Williams’ position (& don’t tell me he has little grasp of basic Marxist economics)
    2. He doesn’t correctly represent Marx (as I suspect you think)

    But please don’t insult me by saying I have little grasp of basic Marxist economics just because you disagree with mine & Sam Williams’ perspective.


  12. I said nothing here about Use Values. I took exactly what you said which was completely wrong!

    You described “Value” as “Socially Necessary Labour-Time”. but, it isn’t as marx sets out in Volume I of Capital, and emphasises in many more places such as in Theories of Surplus Value in his discussion on Rent, and in his description of how some firms produce commodities whose “Value” i.e. the labour-time actually required for their production is higher than their Exchange Value i.e. the labour-time which is determined as being “socially necessary” by the market, and consequently who make lower than average profits, or even losses! Value cannot possibly be “Socially Necessary Labour-time” because as Marx sets out, it is determined by the Law of Value, and applies whether you are talking about an economy that produces commodities, or not. In other words, it applies also to Use Values that are not Exchanged, and therefore, which do not have an Exchange Value.

    It cannot possibly be “Socially Necessary Labour-time” as marx sets out in Capital I, and many more places, precisely because the Use Values produced have not yet been brought into any kind of social relation (i.e. as Marx sets out in his analysis of commodity fetishism, the Labour used to produce them) with other commodities of the same kind, so it is impossible to determine at this stage what is “socially necessary”.

    You then describe Exchange Values as “prices”. But, Exchange Values are NOT prices. Exchange Values ARE determined by “Socially necessary Labour-time”!!! Prices of production are transformed Exchange Values as I have set out, and as Marx describes in Vol III.

    You now introduce yet another category, which you refer to as “Labour values”, exactly what are these?

    The sum of Exchange Values will not “tend” towards the sum of prices of production. They must be the same according to Marx, because that is a fundamental requirement of his theory, and for Exchange Values to be transformed into prices of production as he sets out in Capital III!!!!

    This is Marxism ‘O’ level. I am dealing with what you write, and it is not just wrong, but it uses terms in such a haphazhard manner that I can only assume that you have very little understanding of the basics of Marxist Economics.


  13. Boffy,

    You profess to be a Marxist yet you succumb to Keynesian fiscal stimulus as a remedy because like Krugman you misdiagnose the problem & the nature of value.

    This is why you’re unable to grasp that aggregate prices can diverge from aggregate values.

    Sam Williams in his latest blog actually has a whole section entitled “What actually is value”, this is what he says:

    “Value is a social relationship of production. To Marx, value is defined and exists in reality as abstract human labor measured in terms of time embodied in a commodity. Every commodity—not just the money commodity—represents at any given point in time a certain quantity of abstract human labor.

    The abstract human labor that a commodity represents is determined by the average conditions of its production. This means that the amount of abstract human labor represented by a commodity can sometimes vary quite radically from the amount of concrete labor, also measured in terms of time, that was actually used to produce the given commodity. On average, an hour of concrete human labor equals an hour of abstract human labor—but this will almost never be true in individual cases.

    Defined the way Marx defined it, value simply cannot exist independently of a commodity. Can a token such as a dollar bill represent value? Not directly. A token can only represent a given quantity of a commodity such as gold bullion at a given point in time. In turn, the gold bullion represented by a dollar, just like the case with all commodities, represents a quantity of abstract human labor—value. According to Marx’s theory of value, only in this way can a dollar, euro, yen, ruble, yuan and so on be a “symbol of value.”

    This is an economic law. Under the gold standard—as late as 1971—it was a legal law as well. The U.S. dollar was defined legally as a definite weight of gold bullion. As long as the monetary authority was willing to redeem its currency in terms of actual gold, whether in bullion or coin, the amount of gold that a unit of the currency represented was fixed. But the amount of value—abstract human labor—was not fixed, since the conditions of production in the gold bullion producing industry—mining and refining—was, as was the case with all other commodities, constantly changing.

    But why can’t a dollar represent value directly without the mediation of a money commodity? For the same reason that value cannot exist independently of a commodity. Abstract human labor is not yet value. It only becomes value when it becomes embodied in a commodity.”

    The important point is, “value simply cannot exist independently of a commodity”. Hence printing more token money, or creating more digits on a computer screen, doesn’t increase value. It may postpone the recession, just like letting someone in debt borrow more may delay bankruptcy. But sooner or later reality cannot be avoided.

    After more than 4 years watching a slow motion car crash, this year may actually be the time when impact happens. Not “only a crisis in certain peripheral European economies” as you say, but extending to the global banking system & the world’s economies, with China landing hard & the US paralysed by debt. You will then hopefully acknowledge the seriousness of the crisis & reassess your theory.


  14. Sorry but:

    1. Money is not any commodity: it cannot be bought in the supermarket (lacks exchange value, except maybe some highly specialized speculative markets) nor can be eaten or otherwise used except as toilet paper (lacks use value). Marx was trapped in some conceptual limitations of his age (some 145 years ago!) such as the pre-capitalist attachment to quasi-monetary commodities like gold. Now we know that money is nothing but an annotation in electronic format: accountancy, a very unfair and chaotic form of rationing coupons. And nothing else.

    You put a lot of emphasis in that, almost like the goldbugger right-wing-“libertarians” (ultra-liberals), as if gold or cowry shells would make the value of money less fetishist somehow. The fact is that the value of money is a social fetish, a “godform”, and its identification with gold nuggets or cowry shells is the economic equivalent of “idolatry”. Money (like “God” in the realm of religion) does not exist because it is represented in a statue or a book, or cowry shells… it exists because people believe in it (whith some coercitive help from the secular authorities). Money is nothing but sociological faith – much like “God” but with a more practical effect.

    Like “gods”, money can adopt material forms but can also exist only in pure imaginary form. It can even be a mere annotation in electronic format, as the money that I’m going to use, as soon as I finish this, to pay the rent and the water bill. I won’t touch even a bank note, never mind any gold.

    And nobody will mind.

    2. Value is not derived only from labor nor all labor is equal (for example highly qualified labor time is much more valuable than low qualification one, which may even be worthless or, in some cases maybe, have negative value – such like an apprentice who is diverting part of the work of an expert to be taught, yet the apprentice is working but his/her productivity is not enough to cover the costs). Also a lot of value is produced by Nature and neither Marx nor the bourgeois economists account for it, what leads to catastrophes like massive pollution, deforestation and so many other mismanagements of natural resources like the destruction of Aral Sea to produce cotton in the desert (what?!) or the forever legacy of pollution of Chernobyl and Fukushima.

    I feel that you, Duvinrouge, are being fundamentalist Marxist instead of critically Marxist. Marx, if alive, would surely appreciate a critical approach. He would surely be the first to criticise his own ideas if he could look at them with the perspective of 150 years and all the 20th century in between.

    Science is not built on the irrational repetition of any dogma but in the critical revision of everything. The first duty of any revolutionary, of any communist, is being scientific and critical, parroting Marx acritically 150 years later is useless religion.

    I’m sorry to be that harsh but sincerely…


  15. Reply To Duvinrouge


    This discussion is becoming pretty pointless, because with every additional thing you write it becomes ever more clear that you do not have a clue about what you are talking about. Sorry, that is not being insulting, it is just stating a fact that is obvious to any economist let alone Marxist Economist.

    I have pointed out why what you have written about Value, Exchange Value, Prices of Production, The organic Composition of Capital, Relative Surplus Value, Absolute Surplus Value is wrong. These are the basic building blocks of Marxist Economics, they are like understanding the principles of multiplication and division in maths. If you do not understand these, and clearly you don’t, you can’t understand anything else. On top of that you then introduce other meaningless terms such as “Labour Values”, which have absolutely no meaning in Marxist Economic terminology as opposed to those above i.e. Value, and Exchange Value – to which could also be added Use Value.

    There is absolutely nothing in the quotation you give from Sam Williams that supports anything you have said! Technically, when he says, “Value is a social relationship of production” he should really have said “Exchange Value”, but Marxists often speak of Value as aa shorthand for Exchange Value, and the fact that he is speaking of Exchange Value is made clear in his subsequent comments. But, I repeat there is nothing in what he says here that I would disagree with. There is nothing here that supports your weird definitions of Value, Exchange Value, etc.

    In fact, Marx makes it clear in his Letter to Kugelmann, that Value as opposed to Exchange Value is not specific to the commodity form or to Capitalism. He writes,

    “Every child knows that any nation that stopped working, not for a year, but let us say, just for a few weeks, would perish. And every child knows, too, that the amounts of products corresponding to the differing amounts of needs demand differing and quantitatively determined amounts of society’s aggregate labour. It is self-evident that this necessity of the distribution of social labour in specific proportions is certainly not abolished by the specific form of social production; it can only change its form of manifestation. Natural laws cannot be abolished at all. The only thing that can change, under historically differing conditions, is the form in which those laws assert themselves. And the form in which this proportional distribution of labour asserts itself in a state of society in which the interconnection of social labour expresses itself as the private exchange of the individual products of labour, is precisely the exchange value of these products.”

    Marx’s distinction between Value and Exchange Value is set out in Capital I, and in his analysis of Rent, for example. It can be simply explained as follows. Suppose there is a farmer who produces potatoes. He produces 1 ton of potatoes in 10 hours. This is the Value of his production. This production is not yet a commodity. He could consume it directly himself. It only becomes a commodity when he brings it to market. It is as yet, merely a Use Value, with a Value determined by the labour expended in its production. Suppose we have another farmer who produces potatoes. It takes him 12 hours to produce a ton. So its Value is not 10 hours but 12 hours. Suppose we have another three farmers producing potatoes, it takes them 14, 16, 18 hours respectively, these being the individual Values of their production.

    Now, they all bring their production to market, so that they are brought into a social relation with every other commodity. They now become commodities themselves. Now, we are no longer concerned with their individual values, but with their Exchange Value. What is this Exchange Value. It is precisely what Sam Williams states above, it is the average socially necessary labour-time required for their production. But, this average can only be derived if we know what the individual Values of these potatoes is! In other words, we have to add together all of the labour-time required to produce the 5 tons of potatoes = 70 hours, and divide it by 5 to arrive at the average socially necessary labour-time required to produce 1 ton = 14 hours. Those farmers who produced their output at a lower individual Value than this would make above average profits. The farmer who produced at the average would make average profits, and those whose individual values were higher than the average would make lower than average profits or losses. As Marx, sets out in his analysis of Rent, it is this variation that enables Landlords to extract Differential Rent, from those that make above average profit.

    Of course, as Marx sets out in Vol III of Capital, under capitalism, these Exchange Values will be transformed into prices of production, so that, in fact, the farmers (actually farmers is not a good example here, because of the role of Rent) as a whole will only be able to obtain the average rate of profit for Capital as a whole.

    Of course, the above analysis assumes, as does Marx in his schemas of reproduction that this output meets with exactly the necessary level of demand to ensure that they are sold at their price of production. But, Marx recognised that this was not a valid assumption. The conditions of Demand are changing constantly within the economy. If Demand is higher than 5 tons, market prices will rise above the price of production, and vice versa, with a consequent effect on profits. Marx understood that these individual decisions by consumers, about how much to purchase at varying prices, are a matter of individual preference i.e. they are subjective decisions based on individual preferences. Where Marx diverges from the Neo-Classical economists here is that he demonstrates why, although these individual preferences affect the level of demand, and fluctuations in market prices, this does not change the underlying nature of the Value of the commodity.

    You say I succumb to Keynesian fiscal stimulus. No I do not. I do not advocate Keynesian solutions, I advocate socialist solutions, which require the workers to take over the means of production. But, as Marx set out against the sectarians in his article on Political Indifferentism, that doesn’t mean we are agnostic about the solutions, or actions that occur short of that. For, example, a strike is not a socialist solution, as Marx and Engels describe. By its nature it accepts the continued existence of capitalism, and of bargaining within it. But, Marxists do not thereby say, we will not support workers when they engage in strikes!

    You say that I misdiagnose the problem, but you have yet to provide one single fact to justify that statement. You have yet to demonstrate that global Capitalism is experiencing a Crisis of Overproduction. What Marx’s analysis demonstrates is that the operation of Capitalism, because of the contradictions within it, is bound to lead to crises of overproduction. But Marx does NOT say that every crisis experienced by Capitalism IS a crisis of overproduction. His analysis of the crises of 1847 and 1857, demonstrated that they were caused by Government Policy i.e. the 1844 Bank Act, which unnecessarily restricted the Money Supply – actually in the same way that your proposal for a return to Gold commodity money would do. As he pointed out those crises were resolved by the suspension of that Act!

    The question today is easily answered. Do you deny that many people who fear losing their jobs, or have other similar concerns will adjust their behaviour accordingly? If they do so by restraining their consumption, and increasing their savings, do you deny that this will have an effect on Aggregate demand? Do you deny that seeing consumer spending constrained in this way, large companies will act accordingly, by curtailing or postponing their own investment decisions, with a further consequent effect on Aggregate Demand?

    That you maintain that Aggregate Prices can diverge from Aggregate Exchange Values demonstrates that you have no understanding of Marx’s economics. In Chapter 9 of Vol. III, Marx sets out how Exchange Values are transformed into Prices of production. Having set this out in a mathematical example he says,

    “Taken together, the commodities are sold at 2 + 7 + 17 = 26 above, and 8 + 18 = 26 below their value, so that the deviations of price from value balance out one another through the uniform distribution of surplus-value, or through addition of the average profit of 22 per 100 units of advanced capital to the respective cost-prices of the commodities I to V. One portion of the commodities is sold above its value in the same proportion in which the other is sold below it…

    And in the same way the sum of the prices of production of all commodities produced in society — the totality of all branches of production — is equal to the sum of their values.”
    This is a fundamental law of Marxist Economics. The fact you deny it, and do not know it, I think proves my point, as does your lack of knowledge of all the other basic building blocks of Marx’s theory.
    You say, “Hence printing more token money, or creating more digits on a computer screen, doesn’t increase value.”
    That is absolutely true, but as Marx demonstrated in his analysis of the 1847 and 1857 crises, if not enough money tokens are being put into circulation that can act to REDUCE the amount of Exchange Value, precisely because it acts to curtail the circulation of commodities. Moreover, a Keynesian stimulus is not simply a matter of printing more money tokens, is it? It is a matter of increasing actual economic activity, as a consequence of deliberate decisions by the State to employ people to undertake various activities, thereby stimulating the production of additional commodities, and thereby additional Exchange Value.
    Your statement, “Under the gold standard—as late as 1971—it was a legal law as well.” Shows you do not understand economics in general either. The Gold Standard broke down in the 1930’s. After WWII, the Bretton Woods Agreement did not restore the Gold Standard, but essentially created a Dollar Standard. The fixing of the price of Gold at $35 was essentially meaningless, because the Value of Gold diverged markedly from this price. In essence all currencies were fixed not against Gold, but against the dollar. That meant that the US could print dollars endlessly without the value of its currency falling. It would only have meaning if other countries demanded payment in Gold rather than dollars, which until the late 80’s they did not. When Charles de Gaulle did, the US simply responded by closing the Gold window, and making the Dollar no longer convertible to Gold.
    Finally, you say,
    “Not “only a crisis in certain peripheral European economies” as you say, but extending to the global banking system & the world’s economies, with China landing hard & the US paralysed by debt. You will then hopefully acknowledge the seriousness of the crisis & reassess your theory.”
    But, if it only extends beyond the European periphery as a consequence of the events you predict, then it is clear that currently it does NOT extend to those other economies, does it? In fact, many of those economies continue not just to grow, but to grow strongly. In fact, I have written several times that I think, that the odds are stacked in favour of European politicians not taking the decisions they need to take, and so such a crisis may well erupt. But, a potential Crisis, is not an actual crisis here and now. If the European politicians take the decisions needed, to establish Political and fiscal Union in Europe, if they abandon austerity in favour of fiscal stimulus, funded by the creation of EU Bonds, and if they use that a a means of improving the efficiency and international competitiveness of European economies then no such calamity is a foregone conclusion.
    Not, only is it in workers interests that such a solution is found, because it will place them in a stronger position, but we should hope such a solution is found, because of the consequences if it is not. However, even were such a crisis to unfold, the most likely longer-term outcome would be a much leaner and more profitable Capitalism, and a yet more powerful boom.


  16. The above should read “until the late 60’s” no “80’s”. By “longer-term” in the final paragraph I mean within 3-4 years of the outbreak of any such crisis. A Depression lasts for around 40 months. The likely consequences here would be – 1) a massive fall in fictitious Capital, that is assets such as Bonds, Shares, House prices could fall by 80-90%, 2) significant falls in real wages on the back of mass unemployment averaging around 20% 3) But, then a significant rise in the rate of profit of industrial Capital, on the back of both the depreciation of Constant Capital, and the fall in wages, 4) a significant shift in the realtive power of Money Capital and Industrial Capital towards the latter, 5) Money freed up from the falls in the Value of fictitious Capital i.e.specualtion, would move into productive investment to take advantage of the much higher rates of profit, now freed from the fear that currently exists, 5) the same is true of the vast money hoards ($15 Trillion in the US alone) waiting to be invested once the current fear and uncertainty is removed 6) a change in the terms of trade between the US and EU with China and other economies in favour of the former as a result of higher levels of competitiveness and a shift into higher valued production, 7) a removal of the curent global imbalances between the above in consequence, and the establishment thereby of a souner basis for a rapid expansion of global trade, as the Long Wave Boom continues.


  17. Boffy,

    It is from the understanding that “value simply cannot exist independently of a commodity” that we can see that commodity money is different to token money or credit money.

    Here’s what Sam Williams says about credit money:

    “Credit allows me to purchase a commodity with credit rather than money. But in doing so, I incur a debt that is payable in money. Credit money is an IOU that can be transferred from one person to another to either purchase commodities or make payments. It can replace gold & legal tender token money as a means of payment or purchases.
    However, the basic function of money, the universal equivalent that measures the exchange-values of all commodities in terms of its use-value, can only be played by a special money commodity, such as gold.
    Fractional reserve banking – banks creating a supply of credit money above & beyond the actual amount of money that they have on hand in their vaults. If credit money were limited only by the amount of commodities in circulation it would be able to banish crises of overproduction. But credit money cannot achieve this because it is payable in money, not commodities. Ultimately, the amount of credit money that can be created is limited by the amount of either metallic or token money in existence, although the maximum amount of credit money that can be created is much greater than the actual amount of metallic or token money in existence. And since the amount of token money that can be created is itself limited through the operations of basic economic laws by the amount of metallic money in existence, in the final analysis so is the amount of credit money. Credit money runs into the limit that a piece of money cannot discharge two debts at the same time. At some point, the issuers of credit money will find themselves unable to raise enough metallic or token money to redeem all the credit money they have created.
    The moment that owners of credit money begin to sense that the issuers of credit money can no longer meet all the demands to redeem the credit money, a panic develops – a monetary crisis. The owners of credit money attempt all at once to convert their credit money into hard cash – whether gold or legal-tender paper money. The end result is a portion of credit money is destroyed, i.e. the money supply contracts.”

    It is credit that allows overproduction to occur:

    “It is precisely during the boom that overproduction develops. This overproduction is initially disguised by the growing inflation of the credit system and by speculation in primary and sometimes other commodities that is financed by the expansion of credit.
    More and more of the total commodity production is being sold on credit, and less and less is sold for money.
    The approach of the crisis is reflected, therefore, not in the fall in the rate, still less in the mass, of reported profits but rather in the deterioration of the “quality” of profit. The percentage of debt payments on both consumer and commercial credit and bank credit that are “late” is increasing. But the boom is kept going by the banks’ “rolling over” these debts.
    Eventually, the inflation of credit cannot be pushed any further. Credit suddenly dries up, the over-trading collapses revealing the previously hidden overproduction in the form of a sudden rise in the inventory-to-sales ratio. The industrial cycle has passed its peak, and the new crisis has begun.”

    This is the overproduction of commodities relative to the money commodity being corrected by the law of value.
    Aggregate prices, because they include token & credit money, get ahead of aggregate values.

    Your reliance upon Marx’s Capital to insist that prices must always equal values is misplaced because Marx abstracted out cyclical crises from Capital (even though he made reference to specific crises).


  18. Reply To Duvinrouge

    “Exchange Value” cannot exist separate from the commodity, but “Value” i.e. Individual Value most certainly can, as Marx sets out in Capital.

    A lot of what Sam Williams says in the quote you have provided is based not on the Marxist analysis of crisis but on the analysis of the Neo-Austrian School of Von Mises, and Hayek. Marx, for example, in his analysis of Money (not Money Tokens) demonstrates the way in which only a fraction of the total Value of transactions is required in the form of the Money Commodity. That is because the Money Commodity acts as a Unit of Account, and for that purpose its presence is not required. Moreover, because in an exchange economy transactions can be netted off against each other, it is only the net payments which require settling in Money. None of this, as Marx demonstrates, at this stage requires the existence of Credit, or even money tokens.

    The statement “If credit money were limited only by the amount of commodities in circulation it would be able to banish crises of overproduction” is pure Mises, not Marx. If it were true, then Capitalism could remove the possibility of such crises, and the case for Socialism would be undermined. It would mean that Marx was wrong about Capitalism suffering from an inherent contradiction, which leads inevitably to such crises. In fact, as Marx points out in his analysis of the 1847 and 1857 crises, it was precisely the 1844 Bank Act, which restricted the amount of money that could be issued in accordance with the Gold in the Bank of England, which created a Credit Crunch, leading to those crises!

    Moreover, Marx demonstrates that even without Credit or Money tokens, but purely on the basis of Value relations, Capitalism inevitably experiences Crises of Overproduction, precisely because they are overproductions of Capital. Capital is led on the basis of competition to over expand, to produce more than can be consumed at prices that enable the Capital used up to be reproduced.

    The statement “And since the amount of token money that can be created is itself limited through the operations of basic economic laws by the amount of metallic money in existence, in the final analysis so is the amount of credit money” is also wrong as Marx demonstrated in the Contribution To A Critique of Political Economy. Token Money, whether it be precious metals like Silver, or Gold that becomes debased below its face value, or other metallic currency such as Copper, or paper money tokens can be issued in theory without limit. The consequence Marx points out in respect of paper money in particular is that it own Value becomes diminished. As he says,

    “In the circulation of tokens of value all the laws governing the circulation of real money seem to be reversed and turned upside down. Gold circulates because it has value, whereas paper has value because it circulates. If the exchange-value of commodities is given, the quantity of gold in circulation depends on its value, whereas the value of paper tokens depends on the number of tokens in circulation. The amount of gold in circulation increases or decreases with the rise or fall of commodity-prices, whereas commodity-prices seem to rise or fall with the changing amount of paper in circulation. The circulation of commodities can absorb only a certain quantity of gold currency, the alternating contraction and expansion of the volume of money in circulation manifesting itself accordingly as an inevitable law, whereas any amount of paper money seems to be absorbed by circulation.”

    The issuance of Credit Money is not limited by the amount of Money or money tokens in circulation, but by the Banking laws and regulation. Nor is it true that a single piece of money cannot discharge two debts at the same time. As Marx says, debts and transactions are netted off against each other simultaneously -either directly between firms or through the banking system – all the time. The limitation is not whether there is enough commodity money in existence to back the Credit Money created, but whether this Credit Money has a real existence in the form of Exchange value in the form of commodities in general standing behind it. In other words, as Marx sets out, the amount of Money put into circulation depends upon its own Value and its velocity of Circulation, which has to be equal to the Value and quantity of commodities being circulated. Provided, the amount of money tokens or Credit, standing in the place of Money does not exceed this limit, then it will retain the same Value. If more is put into circulation, then the Value of the Money tokens will fall i.e. the prices of commodities will rise, inflation.

    The fact that aggregate prices can be inflated because they are measured in devalued paper money tokens does not change at all the relation with aggregate values, precisely because these aggregate Exchange values are measured using exactly the same devalued paper money tokens! You are guilt of a form of fetishism that instead of recognising that these Values are determined by the Labour-time required for production instead sees that Value as being determined by the Value of Gold. If an hour’s Labour-time equals 1 ounce of Gold, which equals $1, then a coat which requires 10 hours of labour-time to produce will have an exchange Value of $10. If the dollar is devalued as a consequence of money printing or excess credit, so that 1 ounce of Gold equals $2, then the exchange Value of the coat will be $20. So, according to Marx’s theory as opposed to Austrian Theory, no divergence between Total Exchange Values and Total Prices is possible!

    Why you think Marx did not take into consideration crises, which is a fundamental part of his analysis, and what you think this might have to do with him not foreseeing a divergence between total Exchange Values and Total prices, God only knows!


  19. Boffy,

    This is a much more interesting response.
    We’ll leave to one side the assertions you make about Von Mises & Hayek, trying to taint Sam Williams, that’s seems to be your style.

    You say, “You are guilt of a form of fetishism that instead of recognising that these Values are determined by the Labour-time required for production instead sees that Value as being determined by the Value of Gold. If an hour’s Labour-time equals 1 ounce of Gold, which equals $1, then a coat which requires 10 hours of labour-time to produce will have an exchange Value of $10. If the dollar is devalued as a consequence of money printing or excess credit, so that 1 ounce of Gold equals $2, then the exchange Value of the coat will be $20.”

    This is getting to the heart of the disagreement.
    No, not determined by the value of gold, but requiring a money commodity to measure them.

    Because my Marxism is of ‘O’ level standard, I’ll respond with a quote from Sam Williams. It is from: http://critiqueofcrisistheory.wordpress.com/responses-to-readers-austrian-economics-versus-marxism/the-failure-of-capitalist-production-by-andrew-kliman-part-2/

    “Because labor under any system of commodity production, including capitalist production, is private, it can only express its social nature by exchanging for another commodity with a different use value. Except for the earliest stages of barter, the abstract labor embodied in a particular commodity having a particular use value with a particular quality must prove its convertibility into a given quantity of the money commodity measured in the unit appropriate for the use value of the money commodity. This is necessary to demonstrate that the abstract human labor embodied in it is actually a fraction of the total social labor. In contrast to all other commodities, the labor embodied in the money commodity, Marx explained, is directly social.”

    It’s worth reading the whole article, because it has a lot to say on the whole issue of non/commodity money.

    Perhaps after reading it & still disagreeing, you can post directly on Sam’s website & we can hopefully get a response from him. So far I don’t think anyone has really seriously challenged him. Although I’m so far persuaded by Sam Williams’ argument about commodity money & his explanation of crises of overproduction, I’m not so dogmatic as to hold this view with religious conviction. Please engage with him & hopefully we can widen this discussion to include others like Kliman & how it relates to Marxist crisis theory.


  20. “We’ll leave to one side the assertions you make about Von Mises & Hayek, trying to taint Sam Williams, that’s seems to be your style.”

    Its nothing to do with “tainting” or my “style”! The argument that crises are caused by an excess of Credit is the Misean Theory of the “Crack Up Boom”. It has nothing to do with Marx’s theory of the overproduction of Capital.

    “No, not determined by the value of gold, but requiring a money commodity to measure them.”

    The Exchange Value of a Money Commodity is itself measured in the same way as any other commodity – by the labour-time required for production. Whether your fetish is over Valuing commodities in terms of Gold or some other Money Commodity is irrelevant it is still to locate the determinant of Value in the wrong place!

    You end up with commodity fetishism i.e. seeing the Value of commodities as being determined by a reified relationship between things (commodities – money) rather than what it is a relationship between human beings, human labour. It is impossiuble for a Money Commodity be it Gold or cows, to act to measure Exchange Value unless its Value has itself been determined, and as a commodity itself what is required to “measure” its value to use your term? It cannot mneasure itself, it is meaningless to say that a one ounce Gold coin is worth one one ounce Gold Coin!

    What is required to measure the Exchange Value of Commodities including the money ommodity is not money, but abstract labour-time, as Marx makes clear.


  21. The following quote is part of a much longer article on the Misean theory of Money and Credit, and the Crack-Up Boom. It shows where the argument you have been pushing comes from.

    “The boom can last only as long as the credit expansion progresses at an ever-accelerated pace. The boom comes to an end as soon as additional quantities of fiduciary media are no longer thrown upon the loan market. But it could not last forever even if inflation and credit expansion were to go on endlessly. It would then encounter the barriers which prevent the boundless expansion of circulation credit. It would lead to the crack-up boom and the breakdown of the whole monetary system.

    The essence of monetary theory is the cognition that cash-induced changes in the money relation affect the various prices, wage rates, and interest rates neither at the same time nor to the same extent. If this unevenness were absent, money would be neutral; changes in the money relation would not affect the structure of business, the size and direction of production in the various branches of industry, consumption, and the wealth and income of the various strata of the population. Then the gross market rate of interest too would not be affected–either temporarily or lastingly–by changes in the sphere of money and circulation credit. The fact that such changes can modify the rate of originary interest is caused by the changes which this unevenness brings about in the wealth and income of various individuals. The fact that, apart from these changes in the rate of originary interest, the gross market rate is temporarily affected is in itself a manifestation of this unevenness. If the additional quantity of money enters the economic system in such a way as to reach the loan market only at a date at which it has already made commodity prices and wage rates rise, these immediate temporary effects upon the [p. 556] gross market rate of interest will be either slight or entirely absent. The gross market rate of interest is the more violently affected, the sooner the inflowing additional supply of money or fiduciary media reaches the loan market.”



  22. Boffy,

    Show me abstract labour time.
    You can’t because it’s immaterial.
    It takes form in commodities & is measured by the special commodity – the money commodity.
    Other commodities are measured relative to the money commodity – by how much they exchange for.
    Value is labour time but the form it takes is the use-value of the money commodity, which if it’s gold is weight of gold.
    Tokens can represent the money commodity but they don’t embody labour time.
    It takes so much time to make an ounce of gold or an ounce of silver.
    It takes little time to make paper money or digits on a screen.
    This is why Krugman & his Keynesian fiscal stimulus will not create any new value.



  23. Time or work are not “immaterial” and in fact can be shown in “material” form in many ways: filming it for instance (or recording it in any other way, including memory).

    I am aware of my work and not just in terms of raw time, but also relative effort (not all work times are equally tiresome or difficult), enjoyment… all that is “material” because it is my neurones, which are “material” (or in a film, which is eaqually “material” and easier to share with you).

    “Tokens can represent the money commodity”…

    Tokens are money as long as others accept it. There’s no such thing as “money commodity”: gold only has value because others accept it (marginally it has some production uses, but also paper, it’s value does not derive from it but from the signs inscribed and the fact that others accept it as symbol of the value of objects, not work time either).

    “This is why Krugman & his Keynesian fiscal stimulus will not create any new value”.

    Value is never created: production is a humanocentric, or even market-centric, fetish! Value is only transformed. You can’t create new value, Capitalism never created new value: it just diverted it from non-humanocentric uses to more intensely humanocentric ones, from tree to furniture, from wilderness to bread, from animal to shoe…

    That’s why Kenynesianism or any other developist, productivist ideology, be it purely capitalist or the misleading “humanism capitalism” that you call Marxist economic theory (probably wrongly), can’t create never any value: because Earth is being exhausted.


  24. Maju, your confusing concrete labour with social abstract labour.
    I’m fairly sure Marx says in Capital that it’s ‘objective but not material’.


  25. Now moving on to credit.
    By paying for commodities today with credit a debt is incurred.
    Corporations are including these debt payments in their revenue & bottom lines, but these are claims on future labour time that may not be realised.
    This applies to individual workers being unable to pay their mortgages, car loans, credit card bills, etc, as well as corporations going out of business owing millions.

    The Austrian economists may correctly understand the importance of credit/debt in cyclical crises, but they do so with the flawed marginalist view of value. Just as much of the mainstream media see the role of debt as being a problem eventhough they blame it on poor government regulation.

    The additional mistake both the Austrians & the media make is to think that such cyclical crises can be either abolished or minimised to a mere hiccup.
    A return to the gold standard is the ideology of the small businessman rightly outraged by the role of finance capital & their ability to create money. As long as finance capital control the state there will be no return, but even if it happened this doesn’t stop the creation of credit & so cyclical crises. Similarly, bank regulation is passed by a state that is under the control of finance capital.

    So cyclical crises can’t be abolished, furthermore, with the concentration of capital – ‘too big to fail’ – crises potentially become bigger. Hence the current ‘kicking the can down the road’ with more debt to deal with the debt problem. This is just increasing the gap between prices & values, & will result in an even bigger collapse.

    All this & we haven’t even got on to the role of the rate of profit in the growth of credit.


  26. “Maju, your confusing concrete labour with social abstract labour”.

    Probably. Because social abstract labor is not labor anymore but can adopt a number of forms: first of all use-value (the share produced by labor), then exchange-value (tokens, money, representing more the use-value, as in demand, than the labor invested in fact) or even nothing: we all do a lot of work that gets no social value, either because it is considered a hobby (live work that you do because you want and not as a slave/employee) or because it is considered your traditional social duty (home work by mostly women, communal work where it persists, slave or serf work for the master, etc.)

    If you want to be materialist you can’t talk work as something immaterial, “social abstract”, but as something material, concrete. Same with the value of commodities (or services), which must be use-value first of all.

    The more I debate Marx, the more I realize that he had some very confused ideas, which he inherited from the bourgeois tradition, notably the labor theory of value and the gold equivalent of money.

    To put a most clear example, with the (human) labor theory of value, you can’t explain all the effective work (use-value, convertible potentially in exchange-value) produced in Permaculture for example. In Permaculture human work is dramatically reduced and Nature’s work is wisely increased, overall increasing the productivity (and sustainability) wile decreasing human effort.

    How’s that possible in the human-labor theory of value? It is not because since the very roots of the theory, the bourgeois intellectuals conceiving it cheated and the work of the horse was attributed to its master, and then logically the work of the slave as well…

    Marxism, or rather a revised revolutionary communist economic theory needs to be more physical (materialist) and much less dogmatic (idealist).


  27. As for your comment on debt and the Austrians, I generally agree. But we must consider to what extent is debt a mere economic equation or a political tool of domination and enslavement (i.e. to what extent is an error or an intentional implementation of new social and legal chains).

    You may be familiar with the history of Haiti, if not you should because it’s paradigmatic of necolonialism and debt as means of exploitation. The plantation colony fought its way to freedom from “revolutionary” France, which, in due time (as Haiti, for reasons of racism, was extremely isolated, with only the nominal support of Bolívar), acknowledged independence in exchange of a huge indemnization (for the freedom of the slaves, go figure!) Indemnization that was not paid immediately but became the seed of an ever-growing mountain of debt, later sold to the USA, which the Haitians, 200 years later are still paying at gunpoint.

    That is exactly what is being done with Greece and that is exactly what has been done with the Spanish homeowners, often not anymore owners of anything (repo) but a pile of debt that they can’t pay anymore.

    We can consider it as process in the tendency to monopolism and the “neo-feudal” financialist degeneration of late Capitalism but it’s not a mere economic issue. Instead it is primarily a socio-political one.


  28. Duvinrouge,

    Your argument clearly now can be seen from that of Marx. What you are putting forward is the argument of the so called “Currency School” that Marx argued against. You fail to ask why so much weight of Gold exchanges against a certain quantity of some otehr commodity. It is precisely because of the labour-time required for the production of each.

    You say show me the abstract labour labour-time. That is easy, it is seen in the exchange relations between commodities, which exists with or without money. Under barter, no money is required, but one commodity exchanges against another based precisely upon the abstract labour-time required for the production of each.

    Your comments in regard of Krugman once again demonstrate your lack of understanding of basic economic concepts. You objected to me talki9ng about your understanding of Economcs not even being up to ‘O’ level standard, but it is a fact. You previously spoke about the Gold Standard continuing until 1971! Yet, I thought every school student of Economic History let alone Economics, knew the Gold Standard collapse in the 1930’s not 1971! You then confuse the Dollar Standard that was established after Bretton Woods (under the name of the Gold exchange Standard) with the Gold Standard itself. Now, you demonstrate that you really on’t understand the difference between Friedmanite Monetarism, and Keynesian Demand Management. But, your argument is wrong in respect of both.

    You describe Krugman’s proposals for Keynesian stimulus –

    “It takes little time to make paper money or digits on a screen.
    This is why Krugman & his Keynesian fiscal stimulus will not create any new value” –

    But, what you have described in relation to printing money is not fiscal stimulus, but Friedmanite Monetary stimulus! A fiscal stimulus is not about printing more money, but about increasing Government spending, or else keeping spending the same whilst reducing taxes, thereby stimulating consumption. It is quite clear that increased Government spending DOES create additional Exchange and Use Values, by building schools, roads etc. The question here is not whether it does this, but whether it is sustainable in the longer term. mandel showed, that during the last Long Wave Boom, such measures clearly were succesful and sustainable.

    As Marx showed, in the quote I gave from the Contribution to a Critique of Political Economy, Money Tokens clearly do “represent” Value, because they represent Money, and their own Value is determined by how many of them are put into circulation to repesent this Money. In that respect, as marx demonstrated, they stand in no different relation to the Money Commodity than when say Gold or Silver coins acted as currency, and yet their actual weight (and therefore value) was depreciated through normal wear and tear or through “clipping”.

    The point here is that, as Marx demonstrated, your argument even in relation to a Monetarist as opposed to a keynesian fiscal stimulus, is wrong. Money tokens continue to retain their value provided they remain in the same proportion to Money, which in turn depends upon the Value and Quantity of commoditiers to be circulated. But, the latter is not a fixed quantum.

    If there are under used resources – and that could be as Marx demonstrated in relation to the 1847 and 1857 Crises, due to insufficient money tokens being put into circulation – then a relaxation of Credit, or other form of Monetary stimulus, may well cause an increase in economic activity – it may lower interest rates, which encourage increased consumer spending, or may lower the cost of Capital increasing investment, for example – and so, this clearly does mean that an increase in both Exchange Value and Use Values occurs. It also means that the increased number of Money Tokens put into circulation have been absorbed by the increased volume of Exchange Values to be circulated, and so consequently the Moeny tokens themselves are not devalued. That, in fact, is what Marx describes as having happened in the 1847 and 1857 crises!


  29. Duvinrouge,

    You say,

    “By paying for commodities today with credit a debt is incurred….
    of business owing millions.”

    But, this applied even before Credit. As Marx shows, it is not Credit that makes Say’s Law false, but Capitalism itself. As long as their is Money, even a Money Commodity, then there is a separation of purchase and sale. I can sell a commodity today for £10 to B. But, I may then hold on to the £10, rather than buy a commodity from B for £10. So, the labour-time B embodied in that commodity is not realised. As Marx and Engels showed, Credit can exacerbate that contradiction and potential for crisis, but it certainly does not cause it! It is in essence no different from other factors which exaggerate that tendency. Moreover, Marx and Engels saw the development of Credit as highly progressive. That is because it facilitates the development of the productive forces – contrary to your Austrian view that it does not create new Value – and because it provides the basis both for the transformation of pivate capitalist businesses, and for the workers to establish Co-ops on an extensive basis.

    Credit can, prevent a partial crisis from overproduction developing into a general crisis of overproduction. It can act to delay the onset of a generalised crisis, and in the process may provide the breathing space required for a reallocation of Capital, so as to prevent a generalised crisis occurring. But, as marx and Engels pointed out, for the same reasons it can cause the crisis when it does break to be more severe. So, again contrary to your Austrian argumentation, Engels in Volume III of Capital in his Preface argues that the reason that the Business Cycle at the end of the 19th Century had been extended from a five year to a 10 year cycle, was precisely because Credit had prevented the outbreak of crisses – he also speaks of the emergence of the Trusts, and of the increased planning of these large companies which repalced the anarchy of the market playing a role.

    The Austrians DO NOT properly understand the role of Credit in crises. They took much of their argument from Marx – in the study groups established by Bohm-Bawerk there were many Marxists as well as what came to be Miseans, and Schumpeterians – the Miseans keen to argue that there was no internal contradiction within Capitalism, argued as you do that crises were a consequence of exogenous factors, such as the actions of the State, in encouraging money printing etc.

    “The additional mistake both the Austrians & the media make is to think that such cyclical crises can be either abolished or minimised to a mere hiccup.”

    But, it clearly is true that cyclical crises can be minimised! That is demonstrated by Engels reference to the lengthening of the cycle, and has been clearly demonstrated by Mandel in relation to the five crises that occurred during the Post War Boom.

    “As long as finance capital control the state there will be no return, but even if it happened this doesn’t stop the creation of credit & so cyclical crises. ”

    But, cyclical crises most certainly are not due to Credit. They existed prior to the development of Credit.

    before you think of moving on to the Rate of profit, I’d think about doing some studying of basic economic theory. In the absence of that, continuing this discussion is pretty pointless.


  30. Boffy,

    In the long-run the consequences of monetary or fiscal stimlus are the same: an extension of overproduction & merely a postponement of the crisis.
    Buying government bonds from banks for cash & hoping it gets passed on in the form of loans to consumers & producers is an extension of credit & overproduction.
    If there’s a ‘liquidity trap’ & governments spend more, they either have to borrow from the private sector or print money.
    Borrowing money that was otherrwise being hoarded is fine as long as there was no overprodction in the first, just some irrational desire not to produce, as you seem to think is the case today.
    The Keynesian argument being that governments spend not until capitalist ‘animal spirits’ are feeling better, whentheycan then run a surplus to restrict their over-exurberence.
    But this is to misunderstand just why capitalists are not investing.
    It’sa failure to recognise that there is overprodction fuelled by credit & that there is now a credit crunch as lenders panic that they won’t get repaid.
    The additonal borrowing or money printing to fund the fiscal stimlus has the same effect of increasing debt & overproduction & postponement of the crisis & a cost of increasing the underling problem.

    It’s not for me to say that the captalists should or should not indulge in fiscal stimulus.
    It is a matter for Marxists to defend workers by arguing against cuts.
    But Marxists should not be Keynesians.
    You should not give the impression that govt. spending can resolve the crisis.


  31. hello! a couple questions

    “When it became apparent that the credit money was better converted to gold, the rush to gold caused a credit crunch, recession and debts to go unpaid.”

    why would credit money be better converted to gold? is it because the profit to be made from investing in gold would be higher than the profit to be made by loaning money to consumers or business?


    “But it’s still not clear to most that aggregate prices are out of line with values and that only a recession (or in this current crisis a severe depression) can restore profitability.”

    why do you say aggregate prices are out of line with values (i assume you mean socially average labor time values)? how does one measure or detect when this is the case? and why would this being out of line require a recession to restore profitability?


  32. uv,

    As the boom turns to bust capitalists buy gold because the boom has artifically inflated asset prices & they need to get out of these assets (shares, property) before they lose a lot of money.

    This is what we mean by overproduction – an overproduction of commodities relative to the money commodity (gold). As the law of value corrects overproduction, non-money commodity production falls, i.e. recession/depression.

    It is credit money that permits this overproduction to happen. Capitalists are being paid with promises of future labour time, not current labour time. This is why profit rates are artifically inflated. Aggregate prices are therefore greater than the sum of all labour time. Remember that although we can talk about socially necessary labour time, the form this takes in the market is amounts of the commodity acting acting as the universal equivalent – most of the time weights of gold or silver. It is this link that has been broken with the fiat money regime we’ve had since at least 1971. The law of value is being held back by the delusion of debt – that central banks can print value. Eventually though the world’s currencies will be debased & the rush to gold will be a stampede.

    This is why I talked about capitalism being on life-support.
    It’s all but dead.



  33. hello again! thanks for your reply here and on my other comment. this has helped clear up my confusion on my questions… but it’s created confusion about another thing. are you saying that currency value is determined by the ration of fiat money to gold (and silver)? if not, what are you saying in regards to the significance of gold and its connection to money, prices, etc.? it almost seems to me you’re saying that gold or precious metals like silver are the only real money. this is very confusing to me because i thought that we’ve been off the gold standard for decades and that even before we went off it officially gold had long since unofficially become irrelevant in terms of currency values, prices.


  34. uv,

    Just what is money? just what are prices? just what is value?

    These questions lay at the foundation of economics & capitalist society.

    To be able to understand what’s going on today requires an understanding of what was going on yesterday. Indeed, we have to go back to the beginnings of capitalism. This is what Marx did for us in Capital. To be able to understand prices you need to understand money, to understand money you need to understand value. And to understand value requires an understanding of commodity production. This is why Marx starts with the commodity in chapter 1 of Capital.

    With barter, goods get exchanged for other goods. But as time passes a particular commodity begins to act as the universal equivalent. A commodity that can easily act as a store of value, like gold or silver. But why do particular amounts of gold act as the price? Because they represent the form of value, the socially necessary labour value that can only be known in exchange.

    Even before paper money lost its direct link to gold, aggregate prices in general can become divorced for the underlying labour value because of credit allowing overproduction. Payment being made not with money but with credit – future labour time. Many Marxists miss this because they take the first few chapters of Capital too literally & forget that Marx isn’t trying to explain capitalist crises but the essence of capitalism. Crisis is abstracted out.

    Today this divorce from underlying values has now been taken to new highs now that paper money (even digital money) is no longer formally connected to commodity money – gold.

    The term money today now refers to digits on a computer conjured up from thin air, such as the purchase of a government bond, itself paid for with ‘money’ created by fractional reserve banking. In otherwords, the term money today doesn’t refer to real money, i.e. commodity money, like gold.

    With gold the connection to value is much more obvious. Today there is no obvious connection between ‘money’ & value. This is why the fiction continues. Capitalists desperately don’t want to accept their assets are not worth much. They are in denial. For example, they really think that their US government bonds will be redeemed. As soon as the Saudis give up on the dollar & oil is priced some other way, the dollar is finished & so is the US economy & those holding US debt.

    The foundation of the capitalist economy, money, has lost it’s role as the measure of value. It really does look like a house of cards to me.

    It is only fair to point out though that many Marxists don’t place such importance on the role of commodity money. However, most recognise the debt mountain & how heavily it weighs on the system.


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